Who benefits from Zambia’s Copper proceeds?

By Hicks Sikazwe

The decision by Barrick Gold Corporation, a Canadian multinational, to suspend operations at Lumwana Mine near Solwezi in North-Western Province did not only open up new wounds but demanded immediate answers as to who benefits from Zambia’s copper proceeds?

On December 17, Zambia’s Parliament approved a proposal in the 2015 National Budget to increase mineral tax for open pit mining from six to 20 per cent. In a swift response Barrick Gold reacted with an announcement effecting the suspension of operations from January 1 2015.

Company vice president Kelvin Dushnisky justified thus; “the new taxation regime which is expected to go into effect on January 1. 2015, eliminates corporate income tax, but imposes a 20 per cent gross royalty on revenue without any consideration of profitability.”

However, to appreciate how emotional and critical the issue of mineral royalty tax is, one needs to trace and understand the colonial economic agenda in pre-independent Africa.

Colonial economic agenda

Zambia, like elsewhere in the continent, was a victim of a settler system whose economic outlay was not only a preserve of the British rulers and allies but most infrastructure was set up to pillage and spirit away local resources.

This is why for instance, you find the former Rhodesia Railways, now called Zambia Railways was constructed from the border mining town of Chililabombwe right through the heart of the Copperbelt, cutting into Lusaka and major parts of Southern Province to South Africa.

The idea was to ensure all the minerals mined from Chingola, Chililabombwe, Mufulira, Kalulushi, Chambishi, Kitwe, Luanshya and Ndola were neatly hauled on to the Railways carted to ports in South Africa and later shipped to European foundries.

In fact under the Central African Federation, 1953 – 1963, when Zambia, (Northern Rhodesia), Zimbabwe (Southern Rhodesia) and Malawi (Nyasaland) were merged and run as one country, Zambia’s immeasurable copper proceeds were pumped into developing Zimbabwe than locally.

Even today, you cannot compare Lusaka’s infrastructure development levels to that of Harare in Zimbabwe. While the former can pass for a semi-shanty township, the latter can qualify as one of the cities in Europe.

As the institutionalised looting of the country’s key foreign exchange earner continued, Zambian copper miners toiled under the colonialist york, tied to inhuman working conditions, poor salaries, crowded and squalid accommodation.

Sad as it may sound, top and best jobs, remained a preserve of whites while nationals could not even be allowed to train as artisans until after Independence in 1964.

Dawn of political independence

Admittedly, significant changes on the mines began a few years after independence as Kenneth Kaunda and his UNIP (United National Independence Party) colleagues began implementing the Zambianisation programme, meant to infuse local trained manpower in the mining industry.

To their credit, but of course with government influence, the mine owners, Nchanga Consolidated Copper Mines (NCCM), run by Anglo-American and the Roan Selection Trust (RST) did not only embrace the above exercise but on the ground improvements were recorded.

In townships, where Zambian miners lived, the companies embarked on a task of replacing poor housing with more humane structures. For instance the communal ablution blocks some of which sadly stand today were demolished.

NCCM and RST were compelled by government to provide houses, subsidised electricity and water supply. The firms built and maintained good roads in the townships.

They constructed schools, hospitals and clinics within a short distance of each other so that miners and their families had access to the facilities easily. While government provided teachers in mine-built schools, the management of hospitals and clinics was left to host companies in each town.

But it is important to point out too that in pursuing the colonial economic agenda the mining companies ran their own trust schools with a British curriculum where children of the white settlers were sent. Though in later years siblings of emerging well to do Zambian miners began filtering into the institutions.

Beyond that, the mines still maintained fee paying hospitals for whites and local Zambians with money.

As the government tightened the grip on economic control, Kaunda’s economic reforms of 1973 saw more restructuring in the country’s mining industry with later, the birth of state-controlled, Zambia Consolidated Copper Mines (ZCCM) to oversee copper affairs.

But even with the merger of NCCM and RST to create an indigenous mining conglomerate, the London Metal exchange (LME) continued to dictate the price of copper- Zambia’s copper.

Under ZCCM, there is evidence that housing and other social obligations continued. On their part miners through the Mine Workers Union of Zambia (MUZ) pressed for good salaries and better conditions of service.

However, many commentators insist that ZCCM began suffering from similar ills previous owners went though. Except this time political interference crept in to affect the running of the organisation.

Appointment of senior management officials became controversial coupled with allegations of favouritism and mismanagement. Other critics observe that as ZCCM grew in structure the monster began dwindling in might. For example, the core business of copper mining was getting neglected leading to failure to recapitalise. The firm spread into an octopus on non-mining activities.

ZCCM, critics say, became a cash cow not only for the ruling elite but the national development agenda. The company became overstretched as the copper proceeds were funnelled into various non-mining activities, some of them completely useless as they were white elephants.

There were persistent reports that many times ZCCM had to come in whenever government failed to pay salaries of any section of civil servants.

In quest for better conditions MUZ demanded subsidies such as on mealie meal. But perhaps the most bizarre, most people felt, was the provision of napkins to delivering wives of miners.

As senior management wallowed into unfettered luxury, the firm was bleeding to the bone and copper production falling to the lowest levels. ZCCM found itself with a higher spending bill with a dwindled revenue bow.

This situation gave impetus to Frederick Chiluba and colleagues in MMD (Movement for Multiparty Democracy) to build claims of mismanagement in ZCCM and in retrospect pushing for privatisation.

Thus, under Chiluba, ZCCM was dismembered and sold in units some of them on ridiculously low prices. The sale of units was so haphazard and unbridled that some divisions like Luanshya faced near extinction as some so called buyers simply peeped at the mine for a few days and left. Others were real pretenders with obscure or no mining background.

So the first major shock of the privatisation of ZCCM was massive job losses, thousands of miners were thrown into the streets to wander like abandoned orphans.

The new owners cut off all social obligations, completely killing football clubs which heavily depended on mine support. Sports facilities which gobbled millions of kwacha to develop were abandoned; some of them converted into churches, bars or structures left to fall off to vandals and neglect.

A story that has never been told is how thousands of other assets were disposed of. Houses, business buildings you name them. Of course some housing units were sold to sitting tenants but there is still a bulky of unaccounted for assets.

Don’t blame Barrick Gold

It would not be fair to blame Barrick Gold or any other private mine owners for resisting the revised mineral tax for open pit mining. The people who should take blame are politicians who negotiated the kind of sale contracts which left Zambians disadvantaged.

While the new owners were firm and ensured they got what they wanted, the Zambian side was an embarrassment. For sure they should have been tough enough to get concessions to make up for the loss of social sector support.

In fact, some investors who came in the first five years of MMD rule, were given tax relief to some extent that others were exempted from paying ground rates to local authorities which lost huge revenue following the sale of council houses.

If there are any proceeds from Zambia’s copper, they are minimal as all profits are immediately transmitted still to foreign countries just like in the colonial days. What remains in the country can be counted on fingers in terms of poor over-taxed salaries.

Pensionable jobs have fizzled out in the mine industry and replaced by fragile contract arrangements.

What is the way foward?

It is very clear that government is asking for a review of mineral tax from open pit mining which is in all fairness inexpensive. The investment that goes in opening mining in terms of equipment and other resources is far much cheaper compared to underground mining.

Open pit mining is cheaper because the ore is on the surface. It is also an acceptable argument that the level of mineral tax is determined by the amount of ore available. But one has to come with new evidence that Zambia’s copper ore resources are not among the most rich and cover vast areas.

Most mine owners should also admit that with the current mining challenges in the industry, there are significant profits being raked in from copper mining in Zambia.

If by the time this article is read, Barrick suspends operations, more than 4,000 jobs will be lost at Lumwana. No one will benefit from that. Already the announcement has left the workforce at Lumwana worried. Mine owners including Barrick, and government need each other. They both hold the key to a solution.

It is critical that dialogue is encouraged between the two groups. On its part immediately Barrick announced the measure government offered an olive branch with Mines minister Christopher Yaluma proposing that the multinational needed to put its case forward to see how the new law would affect the company.

Yaluma’s call for dialogue to mine owners Barrick included, has been supported by the National Union of Mines and Allied Workers whose president James Chansa acknowledged that while mine owners were not happy with the tax review, huge copper proceeds end up in investor countries. But all the same there is need to save the more than 4,000 jobs.

By all accounts, there is a case for a review in mineral royalty tax for open pit mining. It may not be necessarily the 20 percent but a rate that will be accepted by both parties and above all beneficial to the majority of Zambians.


Check Also

ARSP inks new deal with Tenke Fungurume Mining

The Congolese Regulatory Authority for Subcontracting in the Private Sector (ARSP) has announced a new …